This morning the Universityof Ulster/Bankof Irelandreleased their long standing quarterly survey of residential property prices in Northern Ireland– the report is available here. Whilst the price of an average home increased 1.3% from GBP 137,814 (€161,242) to GBP 139,691 (€163,438) in the quarter, prices are still down 44.3% from the peak in Q3, 2007 when the average price was GBP 250,586 (€293,186). The number of transactions also increased slightly by 6% in Q3,2011 from 1,062 to 1,133 which lends support to the claim that the Northern Irish residential property market is stabilising. The average price of a home in the Republic is €175,165 (derived from CSO fall from peak and PTSB/ESRI peak prices)
Northern Ireland is a fascinating case to study from this side of the Border because their collapse from peak equals our own (44.2% according to the CSO between September 2007 and September 2011) yet Northern Ireland doesn’t answer to the ECB but to the Bank of England, it has planning authorities and politicians which are set apart from those in the Republic, no Galway tent for our Northern friends, no section 23 and Sammy Wilson is no Charlie McCreevy or Brian Cowen. And yet their collapse from peak is identical to ours.
In fact you could argue their collapse from peak prices is greater than ours since in the Republic, inflation between September 2007 and October 2011 was just 0.8% whereas for the UK as a whole it was 14.9% (there isn’t a UK regional breakdown of inflation). So all things being equal you might expect a home costing GBP 100,000 in Northern Ireland in October 2007 (their peak) to cost GBP 114,900 today; instead it costs GBP 55,700 which means their real – “real” in the sense of adjusting for inflation – fall is 51.5%, on this side of the Border it has been 44.6%.
The view on here is that Northern Ireland has less distortion of its market place, it doesn’t have NAMA, it has as we’ve seen in recent days a quick and efficient bankruptcy regime, it doesn’t have the mortgage arrears forbearance of the Republic which some say is an unacceptable kicking of the can down the road and all-in-all there’s more action and less wait-and-see than in the Republic. Northern Ireland also has a transparent property market in the sense that the public can see the sales history of any property – that helps price discovery which is even more important to the market in a downturn with a major adjustment.
Speaking of transparency, we will have the biggest property auction ever on 30th November 2011 when Allsop Space put 110+ properties up for sale. A week later on 8th December Osborne King will be holding an auction in Belfast – catalogue here – where 24 properties will be auctioned. Osborne King ran a very tidy auction in September 2011 when it brought 27 properties to the market. The December auction will see a mix of commercial, residential and development property offered with “maximum reserves” – reserves above which the property will be sold, but which may be revised downward on the day, in effect these reserves which Allsop Space also use a buyer-friendly devices which give buyers confidence in prices being sought, so as not to waste buyers’ time. Of course they don’t need price discovery to the same degree as in the Republic – the latest on the Republic’s House Price Database called for in the Kenny Report in 1974 and promised by successive administrations but never delivered, is that we might get a register with a two-year history by next June 2012.
NAMA is exposed to some €4bn of property related loans associated with Northern Ireland developers.
NAMA Wine Lake 
@ NWL There is another factor you haven’t taken into account – capital allowance schemes in the South.
There are still many thousands of units for sale which are pregnant with capital allowances. The value of these capital allowances effectively acts as a distortion to prices.
For example take two houses for sale each originally advertised for sale for €400,000,one in Fermanagh but the other one in Sligo has €200,000 in Capital Allowances. One house effectively comes with a subsidy of €82,000.
The proposals originally issued by TASC (www.tascnet.ie) and lifted by Sinn Féin in their pre- Budget submission would see an end to those legacy schemes, leading to further accelerated falls on this side of the Border.
Again on the inflation rate you are not comparing like with like because UK CPI is in fact the same as our HICP. Therefore the discrepancy is even greater. Also sterling has weakened considerably from €1 – £0.696 in October 2007 to €1 – £0.873 in October 2011, adding additional to the degree of discrepancy.
Speculators from the Free State must be ruing the day they ever went North!
@Niall, They are ruing the day they ever believed the DoF and the government and invested in Capital Allowance schemes in the South that cost them 50% plus of the tax savings (paid up front) ….. as they now watch the politicians renege on these schemes, do a u-turn and abort them. So much for the promises – even legislation – of our ruling classes. No wonder the New Yorkers say “fuhgeddaboudit” when you mention investing in Ireland.
First and most important question what are the fees !!
Second exit strategy lot of job mobility bonuses tied into performance .
Sorry mobile today,excuse typos,
Clearly defined exit strategy vital.
@ WSTT – I can’t comment in relation to the original 1979 property based capital allowances, but certainly from the 1990s onwards Civil Servants strongly opposed all of the extensions to the various Capital Allowance schemes.
People chose to believe Fianna Fáil and their own greed. The various extensions of capital allowances did not come from the Civil Service. I would also point out that McCreevey moved on one Secretary General of the Dept. of Finance for arguing against Government policy, tax individualisation was the final straw in that case.
Most of them were thought up by various pressure groups, either regional ad hoc bodies or the CIF and sold to local and national Fianna Fáil politicians and arrived as fully formed ideas to the Revenue & D of F. There was an effort to introduce a much more nuanced approach to the Capital Allowance schemes under Ruairi Quinn in the mid 1990s. As an architect he at least had an understanding of proper planning and his local Labour Party organisation had done some very good work highlighting the destruction being wrought on the Victorian suburbs in that constituency from the late 1970s onwards.
It is interesting to contrast the Finance Act 1997, http://www.oireachtas.ie/documents/bills28/acts/1997/a2297.pdf and those in the following years, particularly in relation to capital allowance schemes. This Finance Act lost the rainbow coalition the 1997 General Election for being “too careful”. Headlines such as “Payback Time” from the Irish Independent decried the outgoing Government’s unwillingness to throw further coal on a very hot economy.
Blaming Civil Servants in this case is just completely wrong,
>> that the public can see the sales history of any property..
How?
@SV, in the UK I understand that sales prices are readily accessible from a range of free online outlets like
http://www.upmystreet.com/
But in addition I understand that the price is routinely shown on UK Land Registry documents though in some areas you might have to buy additional documents beyond the register.
@NWL Not the case in NI unfortunately.
Copied from another forum :
“Computerised Land Registry records are available for public scrutiny at
the customer information centre in Land Registers headquarters, Lincoln
Building, 27 – 45 Great Victoria Street, Belfast.
The legislation governing the operation of Land Registries in other
areas of the United Kingdom is significantly different to that in
Northern Ireland.
Customers who make application for registration in Northern Ireland are
not required in all instances to provide the price paid for a property.
Where the details of a price which reflects the market value of a
property is provided as part of the registration process it will be
recorded on the register.
There are no plans at present to change the Land Registry rules to make
it compulsory for customers to provide details of house prices when
making an application to register a change of house ownership.”
http://www.housepricecrash.co.uk/forum/index.php?showtopic=168041
@David, thanks for that. In truth I have never searched for a NI price, but know from extensive experience in the UK that the register typically refers to the sale price but that all documents which affect a title tend to be publicly accessible though sometimes for a fee. So conveyancing documents etc are available. I wasn’t aware of any difference in NI but thank you for the comment, and I will investigate further.
[…] Mortgages issued just 7pc of rate during boom Time to make renting a long-term housing choice NI residential property increased by 1.3% Rents showing upward trend – Daft.ie CB does not want powers to enforce rate cuts Public […]
@NWL Don’t know if you spotted this :
“The respected Namawinelake blog has calculated that when the Northern Ireland fall is adjusted for inflation (in other words recognising that prices of other goods have risen since 2007) the decline is over 50%.”
http://www.bbc.co.uk/news/uk-northern-ireland-15757932
@Niall; I think that you may misunderstand my point. I am not blaming civil servants for dreaming up Capital Allowance schemes. I actually believe that there is a place for targeted schemes to encourage investment in the economy. If anything some of the schemes, such as the PPP, have been so fainthearted and Scrooge-like that they have been useless. I would blame the civil servants for the input when that happens. If you want to encourage, you should mean it.
The point that I was making, is that if our government legislates a Capital Allowance scheme giving tax offsets, it damages investment if it changes the rules of that legislation and cancels its effect retrospectively. It has cost the investors in these particular scheme a fortune as, in relation to the Capital Allowances on hospitals, inner city apartments etc., the investors paid 50% of the tax saving to the promoters up front to enable these projects to proceed.
They won’t be caught a second time. And those overseas funds who are contemplating shy away as they consider the promises (or legislation) of the Irish government as sincere as a whore’s kiss.
@ WSTT I have to completely disagree with you. I cannot think of any of these incentives that have worked efficiently.
PPP schemes in particular are a complete waste of money, costing far more in the long-term than direct funding. The Dept. of Education alone can provide plenty of examples around the building of schools. They were introduced by McCreevey as a short-term attempt to have your cake and eat it, i.e. providing tax cuts and at the same time spending. The only problem is that we will be paying for them for twenty years.
The biggest problem in relation to the property based Capital Allowance Schemes is that there is a huge hangover of unused capital allowances & accumulated losses, which will carry on for the next twenty years if they were not closed off. In most cases the stupid investors overpaid for their speculation because they were blinded by short-term tax write offs. Many years ago, one of the current Appeal Commissioners, John O’Callaghan, wrote in an article that investors should ignore the tax write offs and look at the core investment. The tax allowances should be seen as a bonus not the reason for the investment. Now if a tax consultant, could see that, why not the speculators?
External investors would sensibly look at the core underlying returns and ignore any additional tax write offs, taking them as a bonus.
As you so correctly point out, the developers took the value of the tax write offs up front and left the suckers without an even break.
Ah No, Niall, the Revenue left the suckers without an even break. They changed the rules of the game when they had everyone on the pitch – took the ball and left the players scratching their heads.
I believe that sometimes to engender growth, such as is needed now, investors need to be incentivised to invest in particular sectors or, indeed, even in Ireland. Tax breaks to encourage this have their place. What went wrong was (a) the politicising of the tax breaks, (b) the unfocussed nature of them and (c) the begrudging way they were finally packaged by the DoF. The latter reason was why the PPP was a failure. The “incentives” were risible.
Yes, the investors were stupid, which is one reason why they won’t fall for it again. The politicians, the revenue and the builders promoted the allowances as a way of “investing” their funds in the ‘hoods (slums, for non-USA readers) in Dublin instead of paying tax. It will be a case of “a plague on all your houses” next time around – and it will happen again because Ireland needs investment to achieve growth and employment.
BTW, John O’Callaghan was right. He should have shouted it louder. Reagan eliminated property related tax breaks, because he realised that they distort the market – but he did not do so retrospectively. That (the retrospection) was the mistake made by our politicians, advised I am sure, by the civil servants in the DoF. The problem with our politicians and civil servants is that they do not understand the financial markets. You cannot expect investors to accept your promises in the future if you break them. It’s a question of credibility.
Proof of the negative effects of such decisions can be seen in the performance of our property investment market so far this year from the time our dumb government said there would be retrospective legislation relating to UORRs and then fecked off. Four sales over €3 million so far, I believe? What self respecting fund manager would play on that pitch?
There is a world of choices out there for investment funds. We are just a tiny part of the planet looking for it. A carbuncle on the backside of Europe.
Spotlight Tuesday 22 Nov
Tomorrow, 22:35 on BBC One (Northern Ireland only)
SynopsisThe property crash has left a generation in Northern Ireland blighted by debt. Their homes are worth less than their mortgages. The crash has left the Republic’s ‘bad bank’ NAMA as Northern Ireland’s biggest property player, controlling billions in assets. BBC Northern Ireland’s Economics Editor Jim Fitzpatrick investigates the fall out from the biggest economic shock in recent history and how it will affect all our lives for years to come.
http://www.bbc.co.uk/programmes/b017j2g3
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[…] Nationally 45.4%% (46% in real terms as inflation has hardly changed since 2007). Interestingly, as revealed here, Northern Ireland is some 44% from peak in nominal terms and 52% off peak in real terms. Are […]